Question

Briggs and Stratton recently issued debt with issue costs of $5.1 million. How should the costs of issuing these bonds be accounted for and classified in the financial statements?

Short answer

The costs of issuing bonds should be listed as a deduction in the issuance value and are classified as an expense in the financial statements.

Step-by-step solution

Meaning of Financial Statements

Financial statements are the instruments of judging earning potential and managerial efficiency, which provides a comparison and assist in evaluating the company’s performance. Hence, these provide necessary inputs for predicting and other relevant decision-making purposes.

Accounting for bonds issuance costs and their classification in financial statements

The cost borne during the method of debt issuance is termed the unamortized debt issue cost. The costs incurred for issuing bonds should be reported as a decrease in the issuance value and then paid off as an expense over the duration of the bond.